By Kilundo Mbithi
The Kenyan real estate sector has seen a rise in real estate scams in recent years. Real estate changing hands means a lot of money gets to move around, making it a target for scammers and fraudsters. In the process, some people find that they have to contend with pain and loss. Here are some of the ways you could lose your money in this market
Sometimes fraud is not the direct fault of the purchaser. Ghastly fraudulent schemes in the marketplace have been witnessed where Kenyans have lost millions of shillings to schemers. Two of the most popular of such schemes are:
Non-existent Housing Schemes– Not so long ago, a company ran several campaigns on social media offering properties that quite plainly did not exist. Schemes like these often propose payment schedules that are so attractive, many people fail to even find out what exactly it is they are paying for.
Impersonation– This is where someone purports to own a piece of property, mostly land, when, in actual fact, they do not. As soon as you pay the commitment deposit, most schemers of this method take off, never to be heard from again.
Speculation is an action performed in anticipation of an outcome. In essence, it is taking action ahead of an uncertain event, before something potentially profitable that is expected to happen in future.
In the money markets, speculation happens when you buy stocks in a company because you anticipate that the company will declare profits. Should the company be profitable, you would benefit from the dividend payout or price rally. In real estate, more so in Kenya, where speculation on government projects is rife, this strategy can be counterproductive.
Say for instance you bought land along the SGR corridor expecting to get returns from compensation when your land is acquired by the government for the standard gauge railway project. By chance having missed the opportunity to have your property fall along the designated route, you could still hang your hopes on a price rise resulting from the land’s proximity to the improved infrastructure. In reality however, nearness to railway tracks may not do much value addition to what is often grazing land. You would have better luck investing around the location where the tracks terminate.
3. Emotional Attachment
Your uncle may have told you a story similar to the one I heard from mine when growing up: He said a home is the most important investment of your life. So, after graduating from college, you struggled hard to qualify for a mortgage. Eventually, you acquired the most coveted of possessions an African man or woman can have – a home to call your own! Things move according to plan. Somewhere along the way, though, you begin to struggle with the mortgage.
Instead of eating humble pie, selling the home, pocketing the gains and agreeing to become a tenant of the buyer to your home, you push hard. Real hard! You keep falling behind on your mortgage payments. Playing catch-up becomes your most dreaded monthly activity; breaking out into a sweat every time you see, or hear, the word “auctioneer.”
Then one sad day, the auctioneer’s hammer helps you to sober up. You add up the penalties on late payments, auctioneers’ charges and the stress associated with retaining this property. You finally let go. Painfully. Financial illiteracy is the most expensive disease you can possibly contract. I have witnessed large numbers of people losing money while trying to retain properties that were something akin to a deadly virus. You are warned: When it comes to investment, keep your emotions at bay.
I have not necessarily arranged this list in descending order of importance. If I did, ignorance would be placed way up. How would you feel if you found out that you had bought a property at five times its true value? Well it happens in the market many times these days. Say you bought an eight-acre piece of land at a certain location for Sh. 1m but on investigating you realize a friend of yours bought an acre piece of land, of relatively similar qualities, not too far away from you at the same amount.
Comparing your deal against theirs, did you lose money or did you lose some value for your money? And what is the difference? Heartbroken, you take consolation in the promise of income from the add-ons. It takes you another two years to realize that there is a difference between investing and running a business. In other words, ignorance becomes your undoing.
Greed, the irrational intense desire for wealth, power, or some other item that deemed valuable or desirable is a spanner in the works for any investor who gets driven by it.
Among Kenyans, the insatiable rush to become wealthy seems to be getting out of control. Nothing wrong with desiring wealth per se, however, there is everything wrong with desiring wealth without earning it. This is the reason why, every other year, there is a get-rich-quick scheme in the works. If you conduct an audit, you may discover that the culprits are more or less the same people.
The most memorable pyramid schemes of yesteryears were mostly related to multi-level marketing scams that were selling “off-shore” investments that never were. They would entice new entrants with returns so high that the most conservative spenders fell prey.
The real estate industry is currently the next frontier for pyramid schemers. Proponents of these schemes have found an uncanny way to embed non-existent deliverables into real estate transactions. In the process, they are ripping off a section of the population, usually those who cannot rein in their get-rich quick impulses.
All around, the landscape is dotted with offers whose investment criteria defy business logic. How can anyone in their right mind believe an offering in which a house is sold at a deposit of less than 10% of its value, with monthly repayments lower than the rent in the neighbourhood?
Faced with such an offer, one should ask the right questions: Where did they obtain the land from? How are they able to make the offering at a price that is a fraction of going rates? And just how did they obtain construction funding interest-free?, et cetera.
From off-plan schemes to greenhouses, Kenyans are losing their money in the millions buying into non-existent projects or chasing promises that cannot be kept. Any time you see an offer or concept that sounds unconventionally new in the marketplace, pause for a moment. In the real estate sector, there is nothing new being invented.
The techniques may change, but the fundamentals tend to remain the same. To be safe, stick to sound and proven investment analysis methods.